Section 12AA registration cannot be denied without recording dissatisfaction about objects of trust

Balika Vidyalaya Educational & Cultural Trust Vs CIT (Exemptions) (ITAT Cuttack)

We find that as per the provisions of section 11 & 12 of the Act, the income derived from property held for charitable or religious purposes and income of Trusts or Institutions from contributions are exempt from tax provided such Trusts or Institutions are registered u/s 12A of the Act. The procedure for registration u/s 12A is prescribed in section 12AA of the Act which provides that the Commissioner, on the receipt of an application for registration of a Trust or Institution made u/s 12A, shall call for such information from the Trust/Institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the Trust/Institution and may also make such inquiries as deemed necessary on this behalf. It further provides that after satisfying himself about the objects of the Trust/Institution and the genuineness of its activities, the Commissioner shall pass an order in writing registering the Trust/Institution u/s 12A and if he is not so satisfied, he shall pass an order in writing refusing to register the Trust/Institution. The scope of enquiry contemplated u/s 12AA of the Act thus is limited to the extent of Commissioner getting himself satisfied about object of the Trust and the genuineness of its activities so as to grant or refuse the registration u/s 12A of the Act. A perusal of the impugned order of the ld. CIT (Exemptions), however, shows that he has not recorded any adverse comment or dis-satisfaction about the object of Trust or genuineness of the Trust activities. Only he has observed some lacuna in the amendment and dissolution clauses. In our opinion, the ld. CIT (Exemptions) thus has clearly gone beyond the scope of enquiry contemplated u/s 12A of the Act and has refused to grant the registration u/s 12A of the Act to the assessee Trust on a totally irrelevant ground without pointing out as to how he was not satisfied either about the amendment clause and dissolution clauses of the Trust or the genuineness of its activities.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the assessee against the order u/s.12AA(1)(b)(ii) of the CIT(E) Hyderabad dated 22.3.2019 for the assessment year 2018-19.

2. Although the assessee has raised various grounds of appeal, but the effective issue is against the rejection of registration u./s.12AA of the Act by the ld CIT(E) and denial of claim of exemption u/s.10(23C) (iii)(ad) of the Act.

3. We have heard the rival submissions and perused the orders of lower authorities and materials available on record of the Tribunal. The undisputed facts are that the assessee trust is a Society. The assessee filed application in Form No.10A on 30.9.2018 seeking registration u/s.12AA of the Income Tax Act, 1961. The Commissioner of Income Tax (Exemptions) disallowed the registration u/s.12AA of the Act on the following grounds;

i) The amendment clause and dissolution clauses are not proper as there is no intention on the part of the trust to take a previous approval/permission of the CIT(E) prior to making any amendment.

ii) In the winding clause, the assessee has no intention to transfer the trust properties to some other institution having 12A registration and 80G approval.

iii) There is no clause in the MoA which requires auditing of account of the society by a C.A.

4. Similarly, the ld CIT(E) noticed that the assessee society has claimed exemption u/s.10(23)(iid) of the Act of Rs.1,13,15,802/-. But as per section 10(23C)(iiiad), the exemption is available to “any institution existing solely for educational purposes and not for purposes of profit it the aggregate annual receipts of such institution do not exceed the amount of annual receipts of Rs.1 crore vide Rule 2BC of I.T.Rules. Hence, the trust is not eligible for exemption u/s.10(23C)(iiiad) having its total receipts of more than Rs.1 crore. Ld CIT (E) also asked the assessee society to furnish fee receipts books and the receipts for the donation. However, the assessee could not furnish the same, hence, the ld CIT(E) doubted the genuineness of the activities of the trust. Ld CIT DR, in all fairness, submitted that the department has no serious objection, if it is found just, proper and necessary to restore the issue to the file of the ld CIT (E) for fresh adjudication.

5. Ld A.R. of the assessee submitted that the notice dated 11.3.2019 was sent to the assessee, which was received on 18.3.2019 and the date of hearing was on 19.3.2019. He submitted that the location of the assessee trust is at Sambalpur and hearing was fixed at Bhubaneswar which is nearly 300 kms away. However, ld A.R. of the assessee appeared on 19.3.2019 and produced certain documents but could not produce some bills and vouchers, which according to ld CIT(E), the assessee has violated Rule 17A. In view of above, ld CIT(E) observed that in the absence of bills and vouchers, the genuineness of the activities of the assessee trust could not be verified. He prayed that the matter may be restored to the file of Ld CIT(E) to direct the assessee to furnish the bills and vouchers for verification and consider the objects and genuineness of the activities of the assessee trust. The ld CIT DR, in all fairness, submitted that the department has no serious objection, if it is found just, proper and necessary to restore the issue to the file of the ld CIT (E) for fresh adjudication.

6. We find that as per the provisions of section 11 & 12 of the Act, the income derived from property held for charitable or religious purposes and income of Trusts or Institutions from contributions are exempt from tax provided such Trusts or Institutions are registered u/s 12A of the Act. The procedure for registration u/s 12A is prescribed in section 12AA of the Act which provides that the Commissioner, on the receipt of an application for registration of a Trust or Institution made u/s 12A, shall call for such information from the Trust/Institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the Trust/Institution and may also make such inquiries as deemed necessary on this behalf. It further provides that after satisfying himself about the objects of the Trust/Institution and the genuineness of its activities, the Commissioner shall pass an order in writing registering the Trust/Institution u/s 12A and if he is not so satisfied, he shall pass an order in writing refusing to register the Trust/Institution. The scope of enquiry contemplated u/s 12AA of the Act thus is limited to the extent of Commissioner getting himself satisfied about object of the Trust and the genuineness of its activities so as to grant or refuse the registration u/s 12A of the Act. A perusal of the impugned order of the ld. CIT (Exemptions), however, shows that he has not recorded any adverse comment or dis-satisfaction about the object of Trust or genuineness of the Trust activities. Only he has observed some lacuna in the amendment and dissolution clauses. In our opinion, the ld. CIT (Exemptions) thus has clearly gone beyond the scope of enquiry contemplated u/s 12A of the Act and has refused to grant the registration u/s 12A of the Act to the assessee Trust on a totally irrelevant ground without pointing out as to how he was not satisfied either about the amendment clause and dissolution clauses of the Trust or the genuineness of its activities.

7. As regards the contention of ld A.R. of the assessee that some bills and vouchers were not produced due to time constrained by ld CIT(E) for appearing before him from a distance of more than 250 kms and also other unavoidable reasons, we find that there is genuine cause for not furnishing bills and vouchers. Therefore, keeping in view submissions of both the sides and under the facts and circumstances of the case, we direct the assessee to produce the bills and vouchers and books of account before the ld CIT(E) for verification as per Rule 17A in respect of the claim and after getting the same, ld CIT(E) is also directed to examine and verify the genuineness of the activities of the trust keeping in view trust deed and its relevant clauses and decide the issue afresh as per law after affording due opportunity of hearing to the assessee and without being prejudiced his earlier order challenged in this appeal.

8. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced on 26 /11/2020